Victory for enforcement

The Standard Chartered case should stand out as a positive symbol of US regulators trying to make sure the sanctions are enforced.

Standard Chartered bank 390.
(photo credit:REUTERS)

One of the most effective tools the international community has against Iran,
short of war, is the enforcement of sanctions. However, they are only as
effective as the institutions that adhere to the rules.

In a case that
drew shock and scorn, the New York State Department of Financial Services
accused the British bank Standard Chartered of being a front for
money-laundering schemes involving the Islamic Republic. Labeling it a “rogue”
institution, Benjamin Lawsky, the regulatory head, claimed the bank carried out
as many as 60,000 transactions designed to funnel money to Iran’s central
bank.

According to a New York Times article one of the schemes was
nicknamed “project gazelle.” When an American executive warned the bank about
the problem he received a dressing down. “Who are you to tell us, the rest of
the world, that we’re not going to deal with Iranians.”

Lawsky’s
accusations last week sent the bank’s shares plunging 16 percent, wiping out
billions in market value. However, the regulator’s decision to go public with
the claims did not sit well with British regulators or with other American
agencies, such as the FBI, which were also investigating the bank. But Lawsky, a
protégé of former New York heavyweight politician Andrew Cuomo, pressed ahead
with his accusations.

On Tuesday the bank agreed to pay $340 million in
penalties for its actions. The stiff penalty appears to reflect that the bank
knew it faced an uphill battle in defending itself against the accusations and
risked losing its ability to carry out banking operations in the US.

This
is a victory for Mr. Lawsky. But is it a victory for those that want sanctions
against Tehran to be strictly enforced? The banks that have been accused of
involvement in transfers to Iran are often said to hide the transactions by
providing only minimal or confusing details about the source and destination of
wire transfers. In one model the money from oil exports is moved into a foreign
currency in a third country. A foreign bank in that country transfers the money
to a bank operating in the US and the details of the transfer to another foreign
bank are cleaned of certain information that would link it to Iran. In this way
the money is “laundered.” The banks involved make only a small percentage on the
transfers, but this money and ongoing relationships with foreign banking clients
add up quickly.

In a case that came to light on Wednesday, three men were
charged in Germany with violating sanctions against Iran. The men shipped valves
for use in a nuclear reactor to shell companies in Turkey and Azerbaijan,
knowing that the components would look less suspicious if they were exported to
these Iranian neighbors.

Breaking arms embargoes and circumventing
sanctions is an old game. In the well-known story of Iraq’s quest to build a
“supergun” in the 1990s a Canadian engineer named Gerald Bull got around
sanctions by disguising the gun barrel as oil equipment.

Countries that
have gotten used to operating under a siege economy find ways to
survive.

Through 1986, Apartheid South Africa was able to use Britain’s
opposition to sanctions to bolster its economy.

The Standard Chartered
case should stand out as a positive symbol of US regulators trying to make sure
the sanctions are enforced. However, there is still a lack of punishment for the
individuals involved. The banking case and the German case both illustrate that
Tehran is using whatever means it can to find loopholes to its predicament. It
has established a well oiled and skilled regime of shell companies and financial
agents in third countries to keep its economy fit and to keep bringing it
material for its nuclear program. This is evidence that the diplomatic game Iran
plays is primarily a game for time. It wants to drag out diplomacy with the
hopes that it can continue to avoid some of the stiffest sanctions.